Voters Reject 2-Sided Assault on Climate Law

Published: November 3, 2010

SAN FRANCISCO -- California voters yesterday upheld the state's global warming law on two fronts, rejecting a Republican candidate for governor who wanted to delay it while turning aside a referendum funded by oil companies that would have dismantled the measure for years to come.

With roughly half of all precincts reporting at press time this morning, national and state news organizations had proclaimed victory for Democrat Jerry Brown over Republican Meg Whitman in the gubernatorial race and a sizable defeat for Proposition 23, which would have delayed California's climate change law until unemployment in the state dropped to 5.5 percent for a full year.

Prop 23 lost behind a coalition of environmental groups, clean-tech companies, Silicon Valley venture capitalists and hedge fund managers who all had a stake in seeing the statewide climate law, A.B. 32, continue its march toward implementation in 2012. The same coalition helped to elect Brown over Whitman, a former CEO of eBay Inc. who promised on the campaign trail to delay A.B. 32 for one year if elected.

Fred Krupp, president of Environmental Defense Fund, said the Prop 23 defeat sends "a big signal" to the rest of the country and the world that Californians stand firmly behind the law, which would cut greenhouse gas emissions in the state to 1990 levels by 2020. He called the level of cooperation between the fledgling clean-tech sector and environmental groups unprecedented, giving the "No on 23" campaign the street muscle and the money it needed to prevail.

"This is the largest referendum anywhere on the planet where people have directly voted on clean energy and climate policy," Krupp said in an interview. "It's the largest state in the country sending a clear message that they want a clean energy economy and clean energy jobs."

The crucial flaw for "Yes on 23" appeared to have been its direct connection to two Texas-based refining companies, Valero Energy Corp. and Tesoro Corp., which spearheaded the effort and easily led in contributions with multimillion-dollar donations. The "No on 23" campaign strategy from the outset sought to paint the measure as the product of "dirty energy companies" from Texas, and the message appeared to stick with voters.

Ann Notthoff, California advocacy director for the Natural Resources Defense Council, said that in her 30 years of work as an environmental advocate she had never seen a coalition come together so forcefully. The message appeared to be so resonant that bigger oil companies -- including San Ramon, Calif.-based Chevron Corp., one of the biggest polluters in the state -- stayed out of the fight and never came to the financial defense of the Texas refiners.

That left No on 23 with a 3-to-1 advantage at the bank after contributions poured in from Silicon Valley, environmental groups and even Hollywood elites. Then former Secretary of State George Shultz, a Republican and Reagan and Nixon administration Cabinet official, was convinced to come aboard as chairman of the campaign, giving it an air of old-style bipartisanship, Notthoff said.

"I think the Texas oil companies picked the wrong fight," she said. "I think it's a cautionary tale for the oil industry and others who want to mess with the Clean Air Act."

Postmortem: 'Big Oil' sits this one out

In the end, the notion that Prop 23 would produce a heavyweight "Big Oil versus Silicon Valley" grudge match never really materialized, because Big Oil never showed up for the fight. And California's new economy rallied around its homegrown law, minus the pressure that could never materialize from more traditional, blue-collar manufacturing sectors that largely moved out of the state over the last two decades.

Bob Epstein, co-founder of Environmental Entrepreneurs, said the campaign to suspend A.B. 32 instead came to resemble a quixotic effort by two independent, nondiversified refining companies to hold onto their California profits. Epstein said Valero and Tesoro wanted to invest in refineries in the United Kingdom rather than pay carbon fees in California, so they bet on the ballot measure.

"Valero and Tesoro chose a business strategy that bet against California policies," Epstein said.

More to the point, Valero and Tesoro produce a specific type of crude oil that could have more trouble adapting to the state's low-carbon fuel standard. And politically, the companies never formed an alliance with big names in Sacramento, where Gov. Arnold Schwarzenegger (R) whipped up opposition as a way to defend one of his only real legacies as governor, A.B. 32, which he signed into law in 2006.

Schwarzenegger "was the glue that made it work," said Epstein, adding that the governor's family connections to environmental activist Robert F. Kennedy Jr. didn't hurt.

Following the measure's defeat, prominent state officials said they continued to find Valero and Tesoro's role in the initiative somewhat mystifying. Mary Nichols, chairwoman of the California Air Resources Board, said in an interview that she never received "a clear answer" and "never got the facts."

"The best answer I ever got was that they felt they were being disadvantaged relative to other companies about the way we were planning to do the program," Nichols said. "We are so straight at the ARB. We're not interested in choosing one oil company over another. Frankly, I do think the label 'Texas oil companies' was legit. That's not the way we do things in California. I think it was a mistake."

Nichols went on to say that the support from groups like the Black Chamber of Commerce and the Teamsters for A.B. 32 was crucial. Dan Jacobson, legislative director for Environment California, said the coalition should help in future dealings over climate policy.

"You don't get a victory like this and not have it ripple through," Jacobson said.

The result may also have injected a sense of political confidence into a clean-tech sector that has never experienced this kind of victory on Election Day. Nancy Pfund, a managing partner at DBL Investors -- which has investments in SolarCity, BrightSource Energy Inc. and Tesla Motors Inc., to name a few -- described it as the kind of experience that could strengthen the still-emerging green economy from the ground up.

"It's a shot in the arm," Pfund said. "I don't think the movement was weak, but it galvanized the movement."

The view from the other side

Energy lobbyists in Washington, D.C., were taking a longer view. To them, the victory in California was minor, especially when considered against the backdrop of giant Republican gains in Congress and the failure of international climate talks over the last year.

Frank Maisano, an energy specialist at Bracewell and Giuliani, argued that the final outcome on Prop 23 "is not going to matter" because A.B. 32 could ultimately get dragged into court. He added that the law would not reduce greenhouse gas emissions because it represents a single state acting alone.

"The environmentalists are looking for a victory, and they've invested heavily out there," Maisano said from his office in Washington before the result was final. "I expect them to be in full spin mode about how they saved it and how they're going to implement it. Prop 23 would probably do A.B. 32 a favor. It's going to be tough to implement, it'll be legally challenged, it won't have much impact."

Maisano added that "how California goes is not how the nation goes on climate change."

"They may be able to force other issues like transportation fuels, but they won't be able to force the Southeast into adopting this," he said. "The manufacturing base in those regions is way more impacted than the manufacturing base that has basically already left California."

Back in California, Anita Mangels, head of communications for Yes on 23, said the venture capitalists and hedge fund managers behind the A.B. 32 defense team had spent so much money not out of the kindness of their hearts but to protect investments.

"That money was used to disseminate a very misleading message," said Mangels, who noted her campaign was outspent 3-to-1. She also continued to insist that A.B. 32 would be a "jobs killer" that would drive more base manufacturing out of California.

Prop 26 outcome still uncertain

The vote count on a second ballot measure, Proposition 26, that could also affect the state's climate change law was too close to call at publication time.

With 70 percent of precincts reporting, about 53 percent of voters had voted "yes" on Prop 26, to 47 percent against.

The measure would tighten how the state constitution defines taxes and regulatory fees. It has been called the "evil twin" of Prop 23 by environmental activists who fear it would inhibit the state Air Resources Board's ability to charge carbon fees for implementing A.B. 32.

An analysis released last week by the law school at University of California, Los Angeles, found that Prop 26 could "erect significant barriers" to many environmental programs in California, including A.B. 32, by requiring a two-thirds supermajority vote in the state Legislature for many fees and new taxes -- this despite claims by the "Yes on 26" campaign that the measure would simply make it more difficult to increase taxes.